With the Insolvency and Bankruptcy Code, the Narendra Modi government has ended up treating defaulters with kid gloves.

If LIC buys a stake in IDBI what does it get? Those peddling the deal say the distribution strength of IDBI!

The Government of India has junked its Bad Bank plan to avoid getting future generations of tax payers on the hook for the sins of current generation. A noble thought.

If this extraordinary wisdom is extended to insurance policy holders, Prime Minister Narendra Modi’s government can avoid ruining the retired lives of 290 million policy holders of the Life Insurance Corporation of India.

Someone in New Delhi has floated an idea that LIC’s purchase of an additional 30% in IDBI Bank would provide a lifeline to the lender. Whoever may be the fountainhead behind it, the idea is wrong. LIC’s 15% stake in the bank is already under water. As are many more of its investments in state-run lenders. Be that as it may.

LIC’s money is the savings of an average salesman or a clerk or a teacher in a panchayat school and not tax payers’ money for the government to throw around. No one has the right to fiddle around with the nest egg of the working class.

Many believe that IDBI Bank is in the intensive care unit of the RBI, but it is not. It is on the ventilator.

A bank that’s starved of capital can spring back to life with funds, but IDBI has been bereft of drive, vision, strategy for more than a decade when the world of finance was taking a giant leap in a digital world.

IDBI used to boast of record loans in the past. But these days the story is different. Its stressed assets are at 27.95% of total, the highest among all banks. Its capital adequacy is at 10.70%. It hasn’t made a profit in the past three fiscal years. So much so that in a country with hundreds of brokerages, only one covers IDBI Bank. It is a reflection on how investors look at it.

It was put up for strategic stake sale, but no one showed up. There may be little value in its banking business, but its investments in NSDL, NSE and other institutions have value. So does its real estate. Its market value of Rs 21,000 crore reflects these.

If LIC buys a stake in IDBI what does it get? Those peddling the deal say the distribution strength of IDBI!

IDBI Federal Life, an insurance venture part-owned by IDBI Bank is ranked 15th and IDBI’s contribution to the insurance venture’s premium is 50% of total income. In LIC’s scheme of things, IDBI Bank’s distribution is a pigmy. LIC can get into a distribution deal with the current 15% stake when the likes of Max get such a deal for less than 5%.

For a government that did not bat an eyelid to come up with demonetisation that caused hardship for every citizen and implement the disruptive Goods and Services Tax in the long-term interests of the nation, it is shocking to see mollycoddling when it comes to state-run enterprises.

With the Insolvency and Bankruptcy Code, this government ended up treating defaulters with kid gloves.

Furthermore, to make the IDBI– LIC deal happen, the Insurance Regulatory and Development Authority of India has to bend the rules that it laid for the industry in the interests of policy holders. Will the regulator throw to

winds the policy holder and back an unreasonable plan from someone who doesn’t have a skin in the game? What if tomorrow HDFC Life or ICICI Prudential Life seek to buy more than the prescribed limit in HDFC Bank or ICICI Bank? The regulator is the guardian of investors and not there to pamper the whims and fancies of individuals in a government.

Since Independence, tax payers’ money has been squandered to fund political dreams and private enterprise was crippled. Under Indira Gandhi it reached its zenith with nationalisation of banks. There seems to be an urge to use LIC policy holders’ money to meet the gaps now.

One voice that stood for individual business rights and free market was C Rajagopalachari, who broke from Congress to form the Swatantra party. In the 90s it was Narasimha Rao and later Atal Bihari Vajpayee. The benefits have been immense.

Modi’s regime hasn’t harmed free enterprise, but if the government uses LIC as a piggy bank and throws funds into PSU banks, Air India, Railways or BSNL from it, he runs the risk of posterity clubbing him with Indira Gandhi rather than Rajaji or Vajpayee.

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

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